STAGE-3

S-303 - COST AND MANAGEMENT ACCOUNTING � PERFORMANCE APPRAISAL i. Introduction:

There are certain cost, revenue and profit centres, which need frequent performance measurement for control purposes. This enables the management to identify any deviation from the planned activities. This course is confined to such cost techniques that enable the management accountant, to identify the said deviations and report to the management for taking remedial action.

ii. Objectives:

To provide the students with a detailed knowledge of Cost and Management Accounting, to enable them to: use the present and traditional approaches of

cost accounting in different contexts, and apply the cost and management accounting

techniques, and evaluate the desired results in the light of the outcomes.

iii. Outcomes:

On completion of this course, students should be able to: distinguish between the meaning of a joint

product and a by-product, describe the appropriateness of two

acceptable methods of accounting for by-product in the determination of the cost of the joint products,

describe two acceptable methods of allocating cost to joint products and the cost of initial producing department,

explain how standards are set or revised in manufacturing or service industries,

compute and interpret material, labour, overhead and sales variances,

prepare reports showing direct materials quantity and price variances and direct labour efficiency and rate variances,

explain why a company prepares master budget,

describe the components of master budget, explain the inter-relationship between the

components of an operating budget and a financial budget,

explain the role of computerised financial planning models in the budgeting process,

explain how the JIT philosophy has changed manufacturing environment,

describe the criterion for selecting a cost driver, when preparing a flexible budget,

calculate overhead budget, spending, efficiency and volume variances,

explain how flexible budget is used to control manufacturing and non-manufacturing activities,

describe the causes for changes in gross profit, compute sales volume variance, cost volume

variance and sales mix variances, describe the need for uniform cost accounting, design and install costing system and cost

reports of a manufacturing company, apply direct and absorption costing

approaches in job, batch and process cost systems, and

prepare ledger accounts according to context: direct or absorption-based in job, batch or process systems including all related accounts.

INDICATIVE GRID:

SYLLABUS CONTENT AREA WEIGHTAGE SECTION � A COST ACCOUNTING SYSTEMS AND TECHNIQUES 1. Marginal and Absorption Costing 2. Activity Based Costing 3. Process Costing 4. Effect of JIT

5. Uniform Costing

30%

SECTION � B STANDARD COSTING AND VARIANCE ANALYSIS 6. Setting Standard Cost 7. Variance Analysis and Profit Reconciliation 8. Interpretation of variances

30% SECTION - C BUDGETING AND BUDGETARY CONTROL 9. Preparation of Budget 10. Zero Based Budgeting and Activity Based Budgets 11. Budgetary Control

30%

SECTION-D PERFORMANCE MEASUREMENT AND TRANSFER PRICING

12. Divisional Performance Measurement 13. Transfer Pricing

10% TOTAL 100%

Note: The weightage shown against each section indicates, study time required for the topics in that section.

This weightage does not necessarily specify the number of marks to be allocated to that section in the examination.

CONTENTS SECTION-A COST ACCOUNTING SYSTEMS AND TECHNIQUES 1. Marginal and Absorption Costing

Marginal costing and absorption costing, Effect of both systems on profit and inventory valuation, Profit reconciliation.

2. Activity Based Costing

Emergence of ABC systems, Comparison of traditional and ABC systems, Designing ABC system, ABC in service organisations, Pitfalls in using ABC information.

3. Process Costing

Adjustment of WIP at start: FIFO and average method, Normal, abnormal losses and abnormal gain, Adjustment of scrap value of lost units, Addition of units, Joint and by-products, Accounting for spoilage, rework and scrap.

4. Effect of JIT Production

The benefits of just in time production, Total quality management, Theory of constraints and throughput accounting, Throughput accounting (TA) ratio, Accounting entries for a JIT manufacturing system (Back flush).

5. Uniform Costing SECTION � B STANDARD COSTING AND VARIANCE ANALYSIS 6. Setting Standard Cost

Establishing cost standards, Direct material standards, direct labour standards, Overhead standards, Basic cost standards, ideal standards and currently attainable standards, Purposes of standard costing.

7. Variance Analysis and Profit Reconciliation

Computation of cost and sales variances, Mix and yield variances, Idle time variances, Recording standard costs in the accounts, Reconcile standard profit and actual profit using absorption and marginal costing systems, Accounting disposition of variances.

8. Interpretation of Variances

Interpretation of variances, interrelationship, significance, Planning and operational variances, Criticism of standard costing.

SECTION - C BUDGETING AND BUDGETARY CONTROL 9. Preparation of Budget

Theory of budgeting, Administration and stages in the budgeting process, Functional Budgets, Projected income statement and balance sheet, Cash budget, The budgeting process in non-profit organisations, Flexible and Fixed Budgets, Rolling budget.

10. Zero Based Budgeting and Activity Based

Budgets Incremental approaches of budgeting, Zero based budgeting- merits and pitfalls, Activity based budgeting approach.

11. Budgetary Control

Feedback and feed-forward controls, Budget variances and their causes, Responsibility centres and budgeting, Behavioural implications of budgeting and budgetary control.

SECTION - D PERFORMANCE MEASUREMENT AND TRANSFER PRICING 12. Divisional Performance Measurement

Cost centre, revenue centre, profit centre and investment centre, Methods of measuring divisional performance, Return on capital employed, Residual income, Divisional performance reporting.

Recommended Books 13. Transfer Pricing

Transfer pricing methods, Pricing at cost, Standard cost plus mark-up, Market prices, Dual pricing, Negotiated prices, Capacity constrained, Goal congruence.

CORE READINGS

TITLE

AUTHOR

PUBLISHER

Managerial Accounting

Ray H. Garrison & Eric W. Noreen

South Western Publishing Co. USA

Management and Cost Accounting

Colin Drury Thomson Learning, High Holborn Ouse, 50-51 Bedford Row, London

Management Accounting Performance Evaluation

PBP

Professional Business Publications, Lahore.

Cost & Managerial Accounting Jack Gray & Don Ricketts

McGraw-Hill Company Inc., Princeton Road, S-1 Hightslown, NJ08520, New York.

ADDITIONAL READING

Cost Accounting A Managerial Emphasis

Charles T. Horngren / George Foster & Srikant M. Datar

Prentice Hall of India (Pvt) Ltd., New Delhi 110001, India.

Cost Accounting Adolph Matz / Milton F. Usry

South Western Publishing Co., Cincinnati, Ohio, U.S.A.